Study of Hotel Industry

Comprehensive Study of Hotel Industry
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N L Dalmia Institute of Management Studies & Research

CONTENTS
1. Acknowledgment.
2. Executive Summary
3. Objective of the study
4. Evolution of the Hotel Industry

Chapters:
Chapter-1 Hotel Industry(Global view)
Chapter-2 History of Hotel Industry
Chapter-3 Government Policy
Chapter-4 Key drivers of Hotel Industry
Chapter-5 Cost Structure & Barriers to
Entry of Hotel Industry
Chapter-6 Demand-Supply in Hotel Industry
Chapter-7 Competitive Trends in Hotel
Industry
Chapter-8 Outlook of Hotel Industry
Chapter-9 Major Hotel Chains in India
5. Related Issues
-Role of Highway restaurants & Resorts
-Hotel equipment Industry
6. Recent Development
-Use of Information Technology in
Hotel Industry
7. SWOT analysis of hotel Industry in India
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Executive Summary
Indian Hotels Company Ltd (IHCL) operating under the Taj brand,
is the largest hotel chain in the country. EIH operating under the
Oberoi brand is the second largest hotel chain followed by ITC
Hotels (ITCH). Asian Hotels (AHL), Bharat Hotels (BHL),
Oriental Hotels as well as Hotel Leela Venture (HLV) are other
major hotels.
While the 5-star and 5-star deluxe and to some extent the 4-star
hotels are the domain of renowned hotel companies, an
unorganized market exists for hotels operating below these ratings.
Hotel companies such as EIH and ITCH as well as international
hotel chains are aggressively entering into the mid-budget hotel
segment.
Average room rate (ARR) and occupancy are the two most critical
factors that determine the profitability, since most of the marginal
revenue gets added to the bottom-line. ARR in turn depends upon
location, brand image, star rating, quality of facilities and services
offered and the seasonal factor.
Land comprises 45-50% of the total project cost and is therefore

the single largest cost item in the construction of a hotel in India. It
is estimated that the construction cost for a 300 room hotel in Delhi
works out to Rs20mn/room. Since fixed costs constitute 60-65% of
the total operating cost, break-even levels are very high.
Demand for hotels in cities like Mumbai and Delhi are the highest.
In fact at present, out of the total of 19,000 5-star and 5-star deluxe
rooms in the country, 50% are accounted for by these two cites.
These cities along with Bangalore and Chennai serve as gateway to
important tourist destinations
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Presently, the total 5 & 4-star room capacity in the four metro
cities is close to 13,000rooms. Mumbai and Delhi account for the
bulk of the total room availability. In Mumbai room availability is
expected to increase by another 3,100 rooms in the next 2-3 years.
Chain hotels like IHCL, EIH and ITCH are better placed than
single locations hotels like BHL, AHL. Though the latter have
hotels at strategic location (Delhi) the risk associated with single
location hotel is always higher.
In the short term the outlook for the industry appears bleak due to a
significant oversupply and weak socio-economic conditions.
In the long-term the hotel industry in India has largest potential for
growth. This is because India is an ideal destination for tourists as
its is the only country with the most diverse topography. At present
India attracts approximately 2.5mn tourists every year which is just
0.4% of the world tourist arrivals. Countries such as Thailand and
Malaysia, attract thrice as many tourists
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Objective of the Study
1. To understand the Govt. policy regarding the Hotel Industry in

India
2. To understand demand & supply and competitive trends in

Hotel Industry in India
3. To know the impact of IT on Hotel Industry in India
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Chapter:1 HOTEL INDUSTRY
(A GLOBAL VIEW)
Some basic assumptions regarding hotel industry are;
(a)Hotel customers are referred to as ‘Guests’ as they receive

hospitality by way of accommodation or food and drink or all
through for which they pay. If satisfied they return for receiving
further paying hospitality.
(b) A hotel is “immovable”, in contradistinction to a

manufactured product or services which is mobile and can be
conveyed from the venue of production to the site of
consumption.
(c)The capital investment in a hotel industry is generally high and

gestation period for adequate returns on the investment is
normally long.
(d) The demand for hotel facilities has a variety which few
manufactured products have.
(e)Some hotel facilities like rooms, and ‘covers’ in restaurants are

quickly perishable just as empty airline seats are.
(f) Hotels are not only in competition with others, but also with
the products and services of there other industries catering to
discretionary expenditure
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These assumptions postulates that the economic viability of a

hotel depends largely on three factors,
-) The speed with which demand for hotel facilities can be

generated.
-) The capacity to ensure and retain customer satisfaction which

will result in repetitive Business and expansion of business.
-) The package ,tenor of atmosphere, service and quality, which

build the image of the hotel
Hotel industry market segmentation
The total hotel market , which consists of the total demand for
hotel facilities, may be divided into various segments , These
segments are determined as per the needs of the people and the
means they posses to pay for their satisfaction. The fullfilment of
these means relate to the market package, the market for the hotel
will be served according to what is provided ,how it is provided ,
and for how much.
Independent Guests :
A common classification of hotel market segments is according to
purpose of visit by guests, i.e; holiday/tourism oriented ,business
traveler oriented ,conference oriented, or foreign versus domestic
traffic oriented. These terms tend to be equivocal as they relate to
a particular type of traveler or customer irrespective of the
market segments to which he belongs. A foreign tourist staying
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at a luxury hotel may be on business on his company’s expense

account, whereas if he comes as a normal pleasure or leisure
tourist, he may well stay at a lower –tariff hotel.
Groups :
Customers travelling in groups comprise another segment , so do
meeting and conference groups. Therefore , the hotel market
segments correspond to the basic market packages in terms of
spending power as also social classifications, upper /upper-
middle/lower.
Special Groups:
For us in India there is yet another important group segment,
namely non-vegetarian or vegetarian.
THE HOTEL PRODUCT
The hotel product has a number of components like

accommodation, food and beverage, recreation and health , shops,
car rental services, apart from others. But of all , the
accommodation and food and beverage components are the major
once.
The accommodation component of the hotel industry products
requires a clear identification of the type of clientele the hotel
wishes to attract and serve. As customers tend to graduate from
one star category to another, accommodation can be either of the
luxury type almost regardless of the price.
On the other hand , the food & beverage component of the basic
hotel products offers grater scope for flexibility. Qualitative
differentials can be very wide.
It is obvious , however that resident guests in a hotel know what
exactly they are buying in room occupancy and in food and
beverage sales. Hence their experience of the hotel product will
condition their future relationship with the hotels.
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PRICING :
It is difficult for a hotel to exercise differential pricing except for
certain specific purpose. These may typically be differential in
tariffs and prices during the peak and lean seasons; group rates;
contact rates for airline crew; special conference rates; etc. By &
large hotel pricing tends to follow or conform to pricing standards
applicable to the particular city area or resort: to competitive
hotels ;hotel location; tourist location; conference venue and so
on.
Hotel pricing also suffers from a degree of lack of flexibility
,specially cost of empty room-nights on fixes overheads also have
a bearing on tariffs and menu price.
DISTRIBUTION :
The hotel does not journey to its customers to consummate a sale

–Customers do came to the hotel. Hotel distribution relies on
interdependence with other industries serving travelers and
tourists, such as the transportation industry(Airlines, Railways,
Roadways and Shipping lines) travel agents and tour operators,
national and state tourism organizations, shopping and
entertainment providers.
COMMUNICATIONS:
Perhaps the most important elements of the hotel marketing is

communication, as its directly responsible for bringing customers
to the hotel. Hotel marketing communication are either direct or
indirect. The direct communication are through personal selling,
advertising, sales promotion and direct mail.
Indirect communication for hotels include public relations &
publicity.
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The major elements of the hotel communication mix are , mass

media advertising ,direct mail, sales promotion, public relations
and publicity
Advertising:
Hotel advertising is an effective and generally , a long term effort
to inform the customers about the existence of the property
,giving details about the location & the type of facilities offered.
Informative advertisement is necessary for new hotel or a hotel
offering new facilities or service which are different from the
past.
In the advertising a hotelier is dealing with a non-personal contact
with the large audiences. Effective advertisement not only gains
attention of the prospective hotel customers, but also make a
lasting positive impression on the prospector’s mind.
Advertisable Hotel products and services :-
*Conventions, conference & meetings

*Room occupancies
*Reservations for various hotel facilities
*Good eating and top class food
*family dinner
*Dining, dancing & discotheques
*bar & permit rooms
*Sophisticated entertainment
*popular entertainment etc.
Objectives for Hotel advertising:-
• To increase sales
• To increase awareness or interest in: facilities/service available
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• To increase awareness or interest in: Versatile advantages of

hotel
• To increase awareness or interest in: Resource behind the hotel
• To increase awareness or interest in: Endorsements from
satisfied Guests/customers
• To effectively counter wrong impression created by
competitors, media or public opinion .
• To educate Guests/customers about facilities
• To create favorable image of hotel
Sales promotion :
Sales promotion is aimed at generating immediate response in

terms of buying decision.
For a instance, a hill station hotel which normally has almost
empty rooms during the winter or off season may promote its
accommodation and another facilities when a famous winter
sports festival is to undertake in that area or a national or
international conference is to take place or any other convention
or workshop when delegates also need relaxation.
Forms of Travel & tourism Consumer and trade promotion schemes:

Types of Promotion Example
1.Price-off Promotion special discounts etc

2.Premium offers Special package deals
e.g three weeks stay for the price
of two
3.Couponing discounts coupons for shopping,
petrol etc
4.Loyalty schemes “X” sum of money off next
booking if done within a certain
period of time.
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5.Guarantees Money back guarantees in case

of cancellation of flights, tour
failures, bad weather etc.
6.Credit schemes Purchase of tours in installment
payment basis,
7.Welcome-Cocktail Hotel offer first drink as a free
drink
8.Discounts for travel agents &
Airline crew
9.consumer contest game or other contest & winner
get free stay
Specific ongoing sales promotion activities in Hotel Industry:
Sales calls: The sales representative make the sales calls on every
conceivable segment of the potential buyer or seller of the hotel
products.
Sales seminars: sales seminars are normally organized by
Government department of tourism, A hotel company, Hotel
association, OR tour operators.
Trade & Consumer Fairs Exhibitions: The main purpose of these

fairs and exhibitions is to exhibit and promote a tourist product.
It may well be a hotel product or else. Through these types of
fairs a large number of consumers or the potential customers can
be approached assuming that the hotel or the hotel organization is
interested in the particular market.
Direct mailing :
The apparent strong point of direct mailing is that it can be pin-

pointed to reach specific persons for a variety of objectives. The
direct mailing should be an integral part of all other selling
efforts. it is ‘direct’ to a perspective client.
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There are several materials which are using by Hotels. They are
*Reservation confirmations
*Printed folders -These may be sent with the
letterheads
*Post cards-single or double
*Multi page letterhead
*Brochures, scrolls
*Greetings -birthday, seasonal & festival
greetings
*Announcements -opening for new hotel,
restaurant or change In policies
& services .
Public relations :
It is a very important communication function for Hotel Industry.

It is ongoing process for hotel industry at every management level.
Here is some of the publics with which hotel industry must
maintain good relationship ,
They are Guest relations, Media relations, Relations with
government agencies, Community relations, & Employee
relations etc.
Publicity:
Another most important aspect for Hotel industry is Publicity not

necessarily Created by organization and usually generated by
media. Hotel‘s overall image is depend on good or bad publicity .
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Chapter: 2 HISTORY OF
HOTEL INDUSTRY IN INDIA
The Indian sub-continent is vast and with a population of almost
800 million is obviously not homogenous. Apart form Hindi there
are several languages as well as hundreds of different dialects-at
the people of India belong to a variety of faiths.
The country is divided into several states and each state has its
own culture with traditions that go back thousands of years.
Tradition in food too differs from state to state , just as the
European food of Italy is totally different to that neighboring
France or Germany.
Indian cooking has more combinations of flavors and seasonings-

that any other nation in the world.
Indians have much to be proud of in their style of cooking and the
fantastic range of fabulous foodstuffs from around the country.
Hotels and the catering industry started late in the 19th century,
with the development if the major cities, easier sea travel and the
coming of the railways.
In ancient times travelers were a rarity ,but could always rely on a

meal whilst passing through. As the centuries progressed,
travelers ,mostly pilgrims ,would be cared for the temple or
monstries.
During the latter part of the 18th centuries , and the formation by
the British of the East India company. It was apparent that catering
requisites on a more formal basis were required, and with the
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advent of the railways in the mid 19th century. Small hotels and
clubs were becoming part of everybody life for those who could
afford to eat out.
For the ordinary man in the street, curbside catering was a way of
life and for many hundreds of years.
Prior to the formation of hotels and hotel companies, the ‘club’

provided any lodging amenities that were required. These clubs
were restricted unfortunately, to Europeans or upper class Indians.
However it did give many Indians the opportunity to work in an
Hotel-type environment and become skilled in the kitchens and
restaurants .These skills were often passed down from father to
son.
The princely palaces of the many Royal Indian maharajahs and

families were also run on hotel lines of the present day, at least as
far as food and drink were concerned. Kitchens with Indian &
European chefs were considered normal and the banquets of
yesteryear far outshone any thing that is provided today even in the
best of the five star hotels.
India & Indians have a long cultured heritage of catering and

hospitality.
The diversity of the Regional dishes and the talent to produce then
has long been inherent and it is because of this fruitful history that
India, with its numerous Hotels & restaurants ranks among the
worlds leading Hospitality and tourist venues.
Railway catering:- In the mid 19th century Railway network

began in India railway catering facility. Railway companies even
want to the extant of setting up hotels attached to the stations so
that passengers who were changing from one region to another
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could spend the night before or after in relative comfort. The

luxury of sleeping cars & restaurant cars were a much later
development. Now a days Indian railway catering services are also
on contract basis with different Indian Hotels.
Airline catering:-Unlike any other transport system –rail or ocean

liner-air transport has to carry pre-prepared food on board, as there
are no facilities available on any airline for cooking or
presentation.
Most Airlines design and plan flight catering
establishments/kitchens to meet their own requirements. Air India
floated a subsidiary company known as HCL(hotel corporation of
India) with a view to operate a flight kitchens known as “chefair”
and also accommodate travelers in five star category hotels at a
major airports (The central group of hotels)
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Chapter:3 GOVERNMENT POLICY
Hotels form an important and vital segment of the tourism

infrastructure in the country. The economic impact of hotel
industry particularly in export earning, employment generation and
income distribution is widely appreciated in tourism literature. The
tourists spend approximately 40% of their funds on room and
board considering the importance of this sector in promoting
tourism in India, the central government has been continuously
emphasizing development of hotels in its tourism policy.
In June 1982, the Planning Commission recognised tourism as

an industry. In the Seventh and Eight Plans tourism planning got
due importance. A National Committee on Tourism was set up by
the Planning Commission in July 1986 to evolve a plan for the
coming years. In the field of accommodation the recommendations
of NCT, 1988 were:
• Encouragement through suitable incentives to supplementary

accommodation like private guesthouses, tourist bungalows,
forest lodgings etc.
• Construction of Yatri Niwas to be left to the private sector.
• Youth hostels to be provided in as many places as possible.
• The accommodation sector should be provided with monetary

incentives to ease the borrowing and repayment of loans; fiscal
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incentives to improve the profitability and operational input

incentives for greater efficiency in operation and management.
• NAP 1992 with an objective to increase export earning from Rs.

2400 crore to Rs. 10,000 crores by increasing the Indian share
of world tourism from 0.4% to 15 within the next five years,
suggested a new action plan, where a lot of emphasis has been
laid on promotion of hotel industry. Accordingly, the
government of India announced an incentive package that
consists of:
Fiscal incentive under section 80 HHD of the Income Tax Act

where by 50% of the income earned on account of foreign
exchange earnings of a hotel are exempted from Income Tax and
the rest 50% also be exempted if reinvested in tourism industry.
• Concession that hotels set up in rural areas, hill stations, pilgrim

centres and specified destinations will be exempted from
expenditures and 50% of income tax for ten years.
• Interest subsidy on loans for construction of hotels (1% for

loans up to Rs. 75 lakh for 4-5 star hotels and 3% for all other
approved hotels and subsequently this incentive was
discontinued for metropolitan cities and enhanced to 5% for
hotels in specified destination.)
• Incentives to heritage hotels (capital subsidy to the extent Rs. 5

lakhs or 25% of the cost, ten years holiday for expenditure tax
and 50% from income tax.)
Consequent upon the above incentives there is observed a

phenomenal growth in the number of star hotels in all metropolitan
cities. However, there is also criticism that the low budget lodgings
are not given due importance in the government tourism programs.
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The mushrooming of up scale hotels is doing a job for the upper

end of the market but it should be recognised that the economy
hotels attract the international and rich class business tourists
remain out of the affordable reach of the domestic middle class
tourists. When big league hotels had put up with a major decline in
occupancies, the medium priced hotels had few cancellations and a
consistent occupancy rate of more than 60%. The table below
shows how there has been recent growth in the number of star
hotels and how there is a notable decline in their occupancy rate.
The prospect of these medium priced hotels is visible in the light of
increased growth of domestic tourism. Now around 70% of the
applications of TFCI (Tourism Finance Corporation of India) for
loan to finance tourism related projects are from entrepreneurs
waiting to start medium priced hotels.
Recent Development in India:
Category No. of Hotels No. of rooms Estimated average
occupation(%)
1995 1998* 1995 1998* 1995 1998*
Five Star and 92 99 18025 18610 72.6 66.6
Deluxe
Four Star 65 74 4888 5450 78.1 64.9
Heritage 32 46 979 1292 52.1 50.8
Three Star 204 289 10719 14676 76.7 62.3
Two Star 258 314 9378 11136 65.9 55.5
One Star 111 142 3899 4912 68.7 61.2
Classification 216 200 9498 8397 39.4 47.1
awaited
Total 980 1164 57386 64573 73.7 62.9
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CLASSIFICATION OF HOTELS
*Five star deluxe category: This is a qualitative extension of the 5

star category while quantitatively, The basic features are as of a 5
star category. In a 5 star deluxe hotel, The comparative all around
standard of service and amenities is of a very superior quality.
*Five star category:

General features : The façade, architectural features and genera;
construction of the building should have the distinctive qualities of
a luxury hotel of the category, and there should be suitable for a
luxury hotel of this category and there should be adequate parking
space. The hotel should have at least 25 bed rooms, all with the
well appointed attached bathrooms with long baths or the most
modern shower chambers, with 24 hours service of hot & cold
running water. All public rooms and private rooms should be fully
air-conditioned(except hill station) and should be well appointed
with superior quality carpets, curtains, furniture etc in good taste.
There should be adequate number of lefts in the buildings. There
should well –designed equipped swimming pool. all the fittings &
furniture’s are must of highest standard.
Facilities: There should be a reception, cash and information

counter attended by highly qualified, trained & experienced
personal, conference room/banquet halls & private dining rooms.
There should be the book stall, beauty parlor, barber shop,
Recognized travel agency, money changing & safe deposit
facilities. Florist and shop for toilet requisites and Medicine on the
premises. There should be telephone, music system & t.v are must
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in each room. Where ever permissible by law , there should be an

elegant well equipped bar/permit room.
Services: The 5 star hotel should offer both international & Indian
customers and the food & beverage service should be of the
highest standards. There should be efficient & highly qualified
trained staff. 24 hours services should be there. There should be a
special restaurant /dinning room where facilities for dancing &
orchestra provided.
*Four star category:

construction of the building should have the distinctive qualities of
a luxury hotel of the category. The hotel should have at least 25
bed rooms, all with the well appointed attached bathrooms with
long baths or the most modern shower chambers, with 24 hours
service of hot & cold running water. All public rooms and private
rooms should be fully air-conditioned(except hill station) &
features are same as 5 star category
personal, There should be book stall, Recognized travel agency,
money changing & safe deposit facilities. There should be
telephone, music system & TV are must in each room. & same like
5 star category .
Services: The 4 star hotel should offer both international & Indian
customers and the food & beverage service should be of the
highest standards. There should be efficient & highly qualified
trained staff. 24 hours services should be there. There should be a
special restaurant /dinning room where facilities for dancing &
orchestra provided.
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*Three star category:

construction of the building should have good features &
standards. There should be adequate facilities for parking. The
hotel should have at least 20 bad rooms all with attached bath
rooms with bath tub or showers with 24 hours service of hot &
cold running water. At least 50% of rooms should be air-
conditioned .other features should same like normal hotel
requirements.

personal, & same with 4 star category
Services: mostly customer are normally Indians so food &

beverages service should be suitable for those people & with good
standards. The senior staff should have good knowledge of English
& other facilities should also same like other facilities offer by 4
star hotels.
*Two star category:

General features : The building should be well constructed and the
locality and environs including the approach should be suitable for
a good hotel. The hotel should have at least 10 bed rooms &
which at least 75% of rooms should been attached with bath
room. with shower or bath room for every 4 of the remaining
rooms.25% of rooms should have air-conditioned .
Facilities: There should reception counter with telephone. There

should be call ball & only Incoming line of telephone should be
there in every room. Well equipped restaurants should be there .
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Heritage Hotel Category:
General Features: The façade, architectural features and

general construction should have the distinctive qualities,
ambience and décor in keeping with the traditional way of the
places. There should be adequate parking space for cars. All public
rooms and areas and the guest rooms should be well maintained
and well equipped with quality carpets/area rugs, furniture, fittings,
etc. in good taste and keeping with the traditional life style. The
guestrooms should be clean, airy, pest free, without dampness and
musty dour, and of reasonably large size, with attached bathrooms
and modern facilities (e.g. flush commodes, wash basins, running
hot and cold water, etc.). There should be well appointed lobby and
lounge equipped with furniture of high standard, with separate
ladies and gents cloak rooms with good fittings.

counter attended by trained and experienced personnel. There
should be money changing facilities, left luggage room. There
should be a well-equipped, well-furnished and well-maintained
dining room on the premises and, wherever permissible by law,
there should be an elegant, well-equipped bar/permit room. The
kitchen and pantry should be professionally designed to ensure
efficiency of operations and should be well equipped. Crockery,
cutlery, glassware should be of high standard and in sufficient
quantity, keeping in view the lifestyle and commensurate with the
number of guests to be served. Drinking water must be bacteria
free; the kitchen must be clean, airy, well lighted and protected
from pests. There must be three tier washing system with running
hot and cold water; hygienic garbage disposal arrangements; and
frost free deep freezer and refrigerator (where the arrangement is
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for fresh food for each meal, standby generator will not be insisted
upon). The gardens/grounds must be very maintained.
Services: The hotel should offer high quality cuisine and the
food and beverage service should be of good standard. There
should be qualified, trained, experienced, efficient and courteous
staff in smart and clean uniforms and the staff coming in contact
with the guests should understand English. Housekeeping at these
hotels should be of the highest possible standard and there should
be a plentiful supply of linen, blankets, towels etc. which should be
of high quality. Each guestroom should be provided with a vacuum
jug/flask with bacteria free drinking water. Arrangements for
heating/cooling must be provided for the guestrooms in cold/hot
seasons. At places, which have telephone lines, there should be at
least one phone in the office with call bells in each guestroom.
Arrangements for medical assistance must be there. The staff/room
ratio must be in keeping with the number of guestrooms in each
property. These hotels must be run on a professional basis while
losing none of their ambience and services. The heritage hotels
must present a distinctive and traditional life style of the area and
should be of very high quality in terms of service, ambience and
cuisine.
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Chapter:4 KEY DRIVERS

OF
HOTEL INDUSTRY
Average room rate (ARR) and occupancy are the two most critical
factors that determine the profitability,
Since most of the marginal revenue gets added to the bottom-line.
ARR in turn depends upon location, brand image, star rating,
quality of facilities and services offered and the seasonal factor.
Hotel industry is a play on the economy. Buoyancy of tourist as

well as business traffic increases with stable socio-economic
conditions. In the past, the hotel occupancy rates slumped during
the December 92 Ayodhya episode and also during the September-
October 94 plague scare. During they the nuclear tests conducted
had a negative impact on tourist traffic & also due to earthquake .
Quarterly Tourist Arrivals

Season Tourists %
Apr-June 18
July-Sept 23
Oct-Dec 33
Jan-March 26
Leisure tourist arrivals are seasonal in nature. Because of the

climatic conditions, there is a preference for the winter months.
Hence occupancy rates are higher during October-March than
April-September. To encourage tourist arrivals in the off-season
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period many hotels offer hefty discounts on room tariff. Incentives

given are therefore inversely related to the level of occupancy
rates.
Hefty discounts are also offered to repeat customers such as

corporate, airline crewmembers and tour groups. Discounts can
vary between 10-15% for corporate, to as much as 45-50% for
airline crew members. Hence a higher percentage of such guests
lowers the ARR of a hotel.
Business travelers are not seasonal as tourist travelers but they are
more prone to postponing their visits in the event of any
disturbance within the country. Therefore, the business traffic
correlates to the economic climate within the country.
The hotel industry is a net foreign exchange earner. In-fact it is the

second largest foreign exchange earner after textiles and garments.
Depreciation of the rupee therefore leads to windfall gains.
Infrastructure facilities in the country have a great bearing on

foreign tourist arrivals. Improved travel facilities with an increase
in flight seat capacity, expansion in rail and road networks will
commensurately increase the industry prospects.
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Chapter:5 COST STRUCTURE AND

BARRIERS TO ENTRY
OF
HATEL INDUSTRY IN INDIA
Operating leverage (proportion of fixed costs/total cost) is

approximately 70% for the hotel industry. Consequently while
break-even levels are high, income above that level flows straight
through to the bottom-line.
The high cost for constructing a hotel stems from the fact that land
cost comprises 45-50% of the total project cost, about 25-30%
goes into construction and the remainder into furniture and fittings.
The floor space index (FSI) provided to hotels is the same as
residential properties, which is also one of the prime reasons for
the high cost of land. The cost for a 300-room hotel in Delhi works
out to Rs20mn/room.
Administrative and other overhead cost comprise approximately
30% of the total operating cost and is the single largest cost
component. Food and beverage (15%), Employee (19%) Repairs
and maintenance (16%), Power and fuel (12%) and selling
expenses (8%) are the other components of operating cost.
Cost Structure
Component % of total cost
Administrative overheads 30
Employee 19
Repairs and maintenance 16
Food and beverage 15
Power 12
Selling expenses 8
• Source:www.indiainfoline.com/hotels/cost
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The hotel industry in India is heavily staffed. This can be gauged

from the facts that while Indian hotel companies have a staff to
room ratio of 3:1, this ratio is 1:1 for international hotel
companies.
Land is the single largest cost item in the construction of a hotel in

India. Moreover it is very difficult to find vacant land in cities such
as Mumbai and Delhi. Companies operating in these two cities are
therefore relatively protected.
Construction costs are also very steep. It is estimated that

construction cost of land is approximately Rs5mn per room for a 5-
star hotel and Rs3mn per room for a 4-star hotel. Gestation period
for hotel can range between 48-50 mths for a 250 room 5-star
hotel.
Existing players in the industry have a major advantage in being

ahead of others in acquiring low cost leases from governmental
bodies. Most of these leases are of a long term nature valid for 99
years. Hotel majors IHCL and EIH have long-term leases on their
prime properties. AHL owns the land on which the Hyatt has been
constructed.
Moreover, the existing players have a definite edge as they enjoy a

strong brand equity. Chain hotels such as Taj and the Oberoi are
better equipped to cater to the tourists travelling in the tourist
circuit.
-28-

Chapter:6 DEMAND-SUPPLY
IN
HOTEL INDUSTRY
Demand
International business travelers will drive demand for premium

hotels. These hotels mainly draw their clientele from foreign
visitors and domestic business travelers. The fact that these hotels
earn almost 70% of their revenue in foreign exchange bears out
this dependence. Therefore future growth in premium segment will
depend on high spending foreign tourists.
While foreign business tourist arrivals are dependent on the

investment climate in the country, arrivals of foreign leisure
tourists are dependent upon stable socio-political conditions in the
country. More often than not the investment climate and socio-
political conditions are correlated. This is because, stable political
condition results in increase in business confidence and this
translates into increased investments.
When the economic conditions are favorable, hotels enjoy high

occupancy rates. This gives them the flexibility of increasing their
room rates. During the boom phase most hotel companies operated
at very high occupancy rates, which gave them the leeway of
increasing their room rates.
Amongst the foreign tourists, leisure travelers comprise 76% of the

total tourists inflow where as business travelers comprise 21%.
Leisure tourist arrivals are seasonal in nature as India's subtropical
climate leads to preference for the winter months. Occupancy
-29-

levels are low between April-September as is reflected in quarterly

tourist arrivals.
At present India attracts more than 2mn tourists a year. Following
economic liberalization, the flow of foreign business travelers
increased phenomenally in the early 90's. In FY96 tourist arrivals
increased by 21% yoy. Thereafter due to weak socio-economic
conditions growth in tourist arrivals petered off. Following
political turmoil and the nuclear test, tourist arrivals declined by
5% in FY99.
Demand for hotels in cities like Mumbai and Delhi are the highest.
In fact at present, out of the total of 19,000 5-star and 5-star deluxe
rooms in the country, 50% are accounted for by these two cites.
These cities along with Bangalore and Chennai serve as gateway to
important tourist destinations.
Certain tourist destinations have also seen high concentration of

tourist room demand. Destinations such as Agra-Jaipur, Mysore,
Bhubaneshwar-Puri-Konark, Jaisalmer- Jodhpur-Bikaner and
Mahabalipuram-Pondicherry have been popularized by the tourist
operators.
Trend In Tourist Arrivals

Year Arrivals Growth (yoy)
93-94 1.88
94-95 1.82 -3.19
95-96 2.19 20.33
96-97 2.33 6.39
97-98 2.37 1.72
98-99 2.25 -5.06
* Source:www.indiainfoline.com/hotels/tour/
-30-

Supply
The Department of tourism has pegged the total room availability

at 60,000 rooms. There are 42,858 rooms under construction. It is
estimated that to attract 5mn tourists the total room availability
would have to be approximately 120,000 rooms.
Between August 91 and August 1998, 259 foreign collaborations

were approved by the Union government out of which 167
proposals were for equity investments to the tune of Rs2.8bn.
Presently, there are 127 proposals to set up various grades of hotels
at a total investment of Rs10.4bn
Investments in the hotel sector has shown a sharp decline of 18%

in FY99 as compared to FY98, as many of the projects planned
were subsequently called of due to the weak economic conditions
and high cost involved in setting up hotels. Also most players also
did not have the required free cash to continue with their
investments.
Presently, the total 5 & 4-star room capacity in the four metro
cities is close to 13,000rooms. Mumbai and Delhi account for the
bulk of the total room availability. The Taj and the Oberoi group
have significant presence in all the metro cities.
5 & 4 Star Room Availability In Metro Cities
City 5 star 4 star
Mumbai 3,500 1,000
Delhi 5,500 1,000
Calcutta 1,000 250
Chennai 250 600
Bangalore 800 150
-31-

Tourists frequently visit destinations like Agra, Jaipur and Goa.

The total room availability in these cities is to the tune of around
4000 rooms.
5&4 Star Room Availability In Important Tourist Destinations

City 5 star 4 & 3 star
Agra 750 400
Jaipur 800 200
Goa 1,000 700
There are approximately 5,200 (5 & 4-star) rooms that are

presently under construction in the five metro cities. These will be
commissioned by FY02. In the last 2-3 years Mumbai has seen
massive investments (currently under implementation) in hotel
projects. Room availability in Mumbai is slated to increase by
another 3,100 rooms
In Mumbai, the Sahar region has seen massive investments from

major hotel companies which#include Hilton, ITC, Hyatt regency
and the Taj group. Lokhandwala in collaboration with Regent
group is setting up a hotel in Bandra and Marriot in collaboration
with Raheja group is setting up a hotel at Powai. The Oberoi group
(EIH) is constructing a 500 room hotel at the Bandra-kurla co-
mplex
-32-

Chapter:7 COMPETITIVE TRENDS

IN
HOTEL INDUSTRY
Chain hotels like IHCL, EIH and ITCH are better placed than
single locations hotels like BHL, AHL. Though the latter have
hotels at strategic location (Mumbai and Delhi) the risk associated
with single location hotel is always higher.
Operating hotel for management fee is extremely profitable and

remains an effective way of expanding rapidly without employing
capital. Leading hotel chains like the IHCL, EIH and ITCH have
been able to leverage on their brand name and earn management
fees without having to actually invest in hotels.
Hotel companies like IHCL prefer to pick up a minority equity

interest in companies they manage thereby ensuring long-term
viability of management contracts.
Among chain hotels, IHCL has the widest geographical spread,

catering to the business traveler with a presence in all major
metropolitan cities through luxury hotels, and with first class
business and medium tariff hotels in other cities of relevance. The
company is equally well established in the leisure segment with its
hotels being located in all the major tourist destinations of the
country.
ITCH has greater presence in the tourist locations and therefore has
less growth potential than hotel companies having presence in
metro cities like Delhi Mumbai, Calcutta and Chennai. Earning
from tourist locations are also seasonal in nature.
-33-

Hotel companies are developing new brands, especially to

distinguish between premium hotels and budget hotels. EIH for
example has developed the Trident brand as its budget hotel brand.
This brand stands for high quality medium priced hotels targeting
the business and the local business traveler looking for quality
service at a lower price than 5-star deluxe accommodation.
Revenue Concentration Of Different Hotel Companies

Company % rooms in % of revenue from Mumbai and
Mumbai and Delhi Delhi
IHCL 57.2 58
EIH 73.7 71
ITCH 0 0
HLV 66.1 90
AHL 100 100
AHL and HLV by virtue of being strategically located have always

enjoyed higher operating margins. AHL caters mostly to the
business traveler's, which constitutes 75% of its revenues. HLV on
the other hand is located close to the airport and therefore has
locational advantage compared to other major hotels in Mumbai.
IHCL as well as EIH operate on leased land in Mumbai and Delhi

the two most important destinations. Since availability and cost of
land is a major issue in these cities leasing land at comparative
rates has put these companies at an advantage over its peers. While
IHCL's prime properties in Mumbai are built on land leased by the
Bombay Port Trust, the Oberoi group has leased the land from the
government.
-34-

Companies under the Taj and Oberoi banner own properties

overseas. The principal reason was to transform the Taj and Oberoi
into international brands. This is also a brand building exercise
aimed at luring international tourists travelers while on a visit to
India.
ITCH has pioneered the concept of heritage hotels in the country.

In a joint venture with partner ( Maharaja Heritage Resorts) it
manages and markets heritage havelies, forts, palaces and resorts
under the Welcome Heritage trademark.
-35-

Chapter:8 OUTLOOK
OF
HOTEL INDUSTRY
The hotel industry is at present going through one the toughest
periods. Weak economic conditions have lead to a steep decline in
foreign as well as Indian business arrivals. Tourist arrivals have
also seen a marginal decline due to devaluation of the Asian
currencies, which have made these countries cheaper than India.
Substantial additions to room supply especially in metros like
Mumbai will further put pressure on room rentals. The next 2-3
years is not expected to provide any succor to hotel industry due to
the overall recession in India and Asia.
This has resulted in most of the five star hotels operate at very low
occupancy rates. They have been forced to offer discounts on the
rack rates. Average room rentals have therefore taken a beating.
As there was hereto not much competition, the big five hotel
majors were able to unabatedly increase their room tariffs.
However, with the major international hotel chains having evinced
interest in setting up hotels, there is bound to be a price war. India
will become a normal market like the South East Asia with
demand and the quality of services offered determining the room
rentals
Another trend, which has been witnessed during the economic

slowdown, has been the increasing demand for medium budget
hotels due to the exorbitant rates charged by 5-star hotels. Quality
budget hotels are expected to be the future of India's hotel industry.
Companies in future would like to house their middle level
-36-

managers in these budget hotels having reasonably good facilities

rather than the expensive 5-star deluxe hotels
In this regard the Taj group and the Oberoi (through the Trident
brand) have made a strong foray into smaller cities having a strong
industrial base. Earnings from these hotels are likely to be more
stable than the earnings of 5-star hotels.
In the long-term the hotel industry in India has latent potential for
growth. This is because India is an ideal destination for tourists as
its is the only country with the most diverse topography. At present
India attracts approximately 2.5mn tourists every year which is just
0.4% of the world tourist arrivals. Countries such as Thailand and
Malaysia, attract thrice as many tourists.
Globally, leisure and entertainment are seen to be growing

industries. Hence stable socio-political and economic conditions
coupled with an improvement in infrastructure facilities (roads,
airports etc) will improvement the sentiments of the tourists
towards India.
If the above conditions are met tourist arrivals can increase five-
fold from the present levels. In such a situation there will be a
surge in demand for rooms in gateway cities like Mumbai and
Delhi as well as in certain tourist destinations
-37-

Chapter:9 MAJOR HOTEL CHAINS IN INDIA

*Indian Hotels Co Ltd*(Taj Group of Hotels)
IHCL has shown a growth of 14% during FY01.This was largely
on account of increased business confidence which saw the total
demand in terms of rooms pick up as compared with the previous
year. However, the major concern for the company of increased
capacities remains serious concern to the company's top line.
India as a leisure destination is less attractive compared to

established tourist destination for various reasons ranging from
poor infrastructure to lack of active promotion of India as
destination. Tourist arrival grew at 6% in 2000 but still it's on a
lower side compared to other South East Asian Countries.
Industry sentiment remains mixed with the possibility of good
monsoon tampered by the slowdown in major economies
especially US. As a result business travel could very well remain
subdued.
The Indian hotel business mainly focuses largely on foreign
tourists with only 30% of the business coming from the domestic
business and the leisure travelers. The tourist arrivals in India are
seasonal in nature, with the best season being from September to
December followed by a steep fall till May. The period June to
September gains momentum once the monsoons are over. The
slack season is generally used for renovation work and the period
is characterized by discounts to attract clients.
High capital expenditure acts as an entry barrier in the industry

with the availability of prime land at economically viable rates
being a major constraint. The gestation period is long and break
even normally takes five to eight years to happen.
-38-

Due this the established players like Indian Hotels, EIH, etc. have
an advantage over foreign majors as they already have well
establishments at prime locations.
IHCL, popularly known as the Taj Group of Hotels, is the largest

hotel chain in India with its presence in 35 cities around the
country. It has around 55 properties under its management (41 in
India and 14 abroad). IHCL’s hotels located in metro cities
contribute around 70% of its turnover. It has hotels in all the
categories ranging from 5 star to medium priced hotels. IHCL’s
medium priced hotels act as a hedge in times of depressed
economic conditions
-39-

*Asain Hotels Ltd*

AHL’s performance, linked to sector trends, has been adversely
affected on account of fall in business and tourist arrivals. This led
to a dip in its room rental and occupancy rates.
However the company is undergoing a restructuring exercise

through which it expects to yield good results in the long run.
Moreover with political stability at the center both tourist as well
as business arrivals could gather momentum. During 1QFY2001
the company's turnover declined by 6% to Rs252mn while the
profits dipped by 42% to Rs55mn.
The hotel industry has seen a steep decline in foreign as well as

Indian business arrivals. Tourist arrivals in the past 2 years have
seen a marginal decline due to devaluation of the Asian currencies,
which have made these countries cheaper than India. The situation
is gradually moving back to normal with the tourist arrival figure
marginally increasing from 2.3mn in 1997 to 2.5mn in FY00. The
industry is growing at a rate of 9%. With the political and
economic stability being more clearly visible, both tourist as well
as business arrivals are likely to gather momentum in the
remaining part of the year.
The tourist arrivals in India are seasonal in nature, with the best
season being from September to December followed by a steep fall
till May. The period June to September gains momentum once the
monsoons are over. The slack season is generally used for
renovation work and the period is characterized by discounts to
attract clients.
-40-


even normally takes five to eight years to happen. Due this the
established players like Indian Hotels, EIH, etc. have an advantage
over foreign majors as they already have well establishments at
prime locations.
AHL’s investments in Mumbai and Calcutta will depress its ROCE

and RONW in the next 2 years. Moreover the hotels in these cities
could face competition from established players like EIH Ltd and
Indian Hotels. However they will reduce the risk associated with a
one-hotel company. AHL’s low valuations reflect un-exciting
business prospects. Revenue growth is expected to remain more or
less stagnant over the next two years.
-41-

*EIH Ltd*( Oberoi Group of Hotels)

EIH’s operating margins, like many hotel companies, have been
declining since the past few years linked to the depressed condition
in the hotel industry. The trend during 1QFY2001 improved, when
the company reported a 28% rise in net profits to Rs166.7mn. The
sales during the said period were up by 11% to Rs1066mn. The
massive expansion plan undertaken by EIH resulted in high
gearing and hence a rise in the interest expenses.
The devaluation of the Asian currencies, the Kargil issue and the
parliamentary elections had affected growth in the tourism
industry. The situation is gradually moving back to normal with
the tourist arrival figure marginally increasing from 2.3mn in 1997
to 2.5mn in FY00. The industry is growing at a rate of 9%.
With the political and economic stability being more clearly

visible, both tourist as well as business arrivals are likely to gather
momentum in the remaining part of the year.
The tourist arrivals in India are seasonal in nature, with the best
season being from September to December followed by a steep fall
till May. The period June to September gains momentum once the
attract clients.

even normally takes five to eight years to happen. Due this the
prime locations.
-42-

EIH derives 75% of its revenues from the Mumbai and the Delhi
properties. Therefore the company’s operating income is highly
dependent on the business traveler segment which fluctuates with
the economic and investment climate in the country. During
depressed economic conditions, business travelers normally flock
towards lower priced medium budget hotels.
This adversely affects EIH’s earnings. In order to mitigate this

impact, the company now has its budget hotels in place under the
Trident brand.
EIH is a part of the Oberoi Group of Hotels. EIH management has

an excellent track record of growth. The Oberoi hotels have an
excellent brand franchise amongst corporate and business clientele.
The management has continuously invested in refurbishment to
maintain up-market image. Initially the management failed to
strengthen the company's position in other upcoming business
towns and leisure tourist spots. However having assessed the
business potential in these places, EIH under the Trident brand has
been aggressively expanding in business cities like Pune and
Ahmedabad.
-43-

*Hotel Leela Venture Ltd *

HLV’s performance, linked to sector trends, has been adversely
affected on account of fall in business and tourist arrivals. This led
to a dip in its room rental and occupancy rates. Apart from this the
company has suffered on account of a surge in interest costs as a
result of significant capex carried out for their hotels in Goa,
Mumbai, Udaipur and Bangalore.
The performance of the company will continue to remain

depressed as a result of high burden of financial costs. Moreover
the fresh issue of equity shares could prove to be a drag on the
company’s EPS growth.
to 2.5mn in FY00. The industry is growing at a rate of 9%. With
the political and economic stability being more clearly visible, both
tourist as well as business arrivals are likely to gather momentum
in the remaining part of the year.
The Indian hotel business focuses largely on foreign tourists with

only 30% of the business coming from the domestic business and
the leisure travelers. The tourist arrivals in India are seasonal in
nature, with the best season being from September to December
followed by a steep fall till May. The period June to September
gains momentum once the monsoons are over. The slack season is
generally used for renovation work and the period is characterized
by discounts to attract clients.
-44-


even normally takes five to eight years to happen. Due to this the
prime locations.
The world-renowned Kempinski hotels manage HLV. The

company pays Kempinski a management fee, which is
approximately equal to 3% of the room revenues. Kempinski’s
strong brand image and the strategic locational advantage of the
Mumbai hotel has made the Leela Mumbai one of the most
expensive hotels in the country.
Competitive pressure is likely to pull down margins. Bombay is

expected to witness an addition of more than 2000 rooms over the
next 2-3 years near the Sahar airport where the company has its
hotel. There is significant over capacity in Goa too. The result of
all this would be a fall in average room tariff, which will pull down
the company’s overall margins. Earnings growth will remain
depressed because of a higher incidence of interest and
depreciation cost after the completion of Bangalore, Udaipur hotels
and the expansion of Mumbai hotel.
-45-

*ITC Hotels Ltd *

ITCH’s performance has been affected on account of fall in
business and tourist arrivals. This has led to a dip in its room rental
and occupancy rates.
Planned investments of Rs15bn will take time to yield results. The

hotels at Chennai and Calcutta will increase the company’s
presence in the business traveler segment and will contribute
significantly to its turnover in the coming years. Investments by
parent ITC in Mumbai and Bangalore will help earn management
consultancy fees.
to 2.5mn in FY00. The industry is growing at a rate of 9%. With
the political and economic stability being more clearly visible, both
tourist as well as business arrivals are likely to gather momentum
in the remaining part of the year.
The Indian hotel business mainly focuses largely on foreign

tourists with only 30% of the business coming from the domestic
business and the leisure travelers. The tourist arrivals in India are
seasonal in nature, with the best season being from September to
December followed by a steep fall till May.
The period June to September gains momentum once the
attract clients.
-46-


even normally takes five to eight years to happen.
Due this the established players like Indian Hotels, EIH, etc. have
an advantage over foreign majors as they already have well
establishments at prime locations.
-47-

Releted issues
*Role of Highway Restaurants & Resorts*
Today the number of Highways being build has increased the

tourism in the country. With this ,Growth many restaurants ,bars
,resorts & fast food outlets have emerged to cater to the needs of
all types of vehicles running on the highway.
these Travelers include motorists, coaches, Holiday makers,

corporate houses arranging conferences ,Seminars & training
sessions for their executives at hill stations etc.
The difference in Running of city restaurants & highway

restaurants that people who came to city restaurants are more or
less of some or nearby locality whereas in highway restaurants
people who came from different part of the country.
Highway catering suffers staff problems as most of the sites are

away from areas of habitation.
Significant management problems such as no fixed working hours,

block of inventory & high overheads are other.
For a highway restaurants tasty & hygiene food, alert security

arrangements, good infrastructure are necessary. It would gives
repetitive client advantage.
-48-

*Hotel Equipment Industry*

The performance of Hotel equipment industry has been fairly well
despite the odds. Though the industry has not grown in past few
years but the business has been stable. One reason for slow growth
is that the Indian Hotels are not getting good business. This has
resulted in low equipment purchases. The solution for all these
ails is that the government should focus more attention on
tourism development in the country.
Once the industry boom all the other sector connected to the
industry will automatically grow. However ,slow down in the
hotel industry has meant that we are servicing more of fast food
outlets, restaurants outdoor caters, etc.
Major problem being faced by the equipment industry is that

customers delay in payments .High custom duty is another area of
problem.
AAHAR is the on of the major exhibitions in the food &

equipment segment. It has became ideal ground for buyer-seller
interaction and leads to business development with a lot of new
client coming in to hotel Industry. Indian trade promotion
organization(ITDO) give more weightage to promotion and
marketing the equipment.
Target market for hotel equipment products is very broad. Hotel,

restaurants, fast food joints, Industrial, Hospital canteens, coffee
shop, entertainment centers, Ice cream parlors etc. Hotels are the
biggest users of these range of equipment.
-49-

//Recent Development//
*Use of Information Technology in Hotel

Industry*
Today Information Technology is the lifeline of hotel Industry. It
has penetrated almost all departments of a hotel and helped the
industry in a big way. To be a global player one cannot ignore
place on the IT front. What is happening at the movement, is that
It is also helping Hoteliers strengthen their relationship with their
relationship with their respective guests, The most important
assets for any Hotel.
*How IT effects hotel?

Property management system(PMS) are helping to create a
database of guests needs and preference and serving them to the
best of their liking without actually interfering with their activity.
It’s help hotels to reach their customers in better way but also
ensure loyalty from their prized guests. The beginning of the IT
interface starts right from the check in point.
Central reservation system(CRS) is mostly used for reservation

purpose in many hotels. with that hotels can know about the
availability of room India-wide of their chain of hotels within a
key stroke.
Most of the 5 star or 4 star hotels are using IT now a days .They
have totally computerised accounting department. That is
interface with other departments of the hotels. Their supply chain
management is also completely IT enabled.
At the hotel level, reservations is number one, without IT one

cannot even think of such high service delivery. Accounts, HRD ,
and receivables are some of the areas where IT plays a major role.
-50-

The web based reservation is fast emerging as a future medium of

advance reservation for heritage & independent hotels, Witnessing
a 600 per cent increase during 1999-2000*
According to survey ,jointly conducted by the Federation of Hotel

& restaurant Association of India(FHRAI)
“Hotel web sites at 5.5 % had the highest growth rate over the
previous year specially in the heritage sector where it accounted
for 12.4 per cent of all advance reservations”
The report shows the growing importance of IT in the Hotel

Industry. The survey indicates That while almost all hotel use
some accounting software packages, The penetration of Local area
Network(LAN) within hotels is about 40 per cent. About 30 per
cent of 1,131 hotels surveyed found using Management
Information System(MIS)
Web sites are extensively used by the star category hotels as

effective marketing media. About 89.9 % of hotel still relay on
print media.
At the same time 84.4 % five star deluxe &91.3 % five star hotels
are found using their web sites as an effective marketing media .
-51-

SWOT ANALYSIS
STRENGTHS:
1. Dynamism in the Tourism and Hospitality industries.

2. Continuous inflow of Tourists in the country.
3. India’s rich cultural heritage.
4. Low labour costs as against the world standards.
WEAKNESSES:
1. Regional imbalance of hotels.

2. Capital intensive
3. Labour intensive.
4. High taxes and tariffs for every service.
5. Disparity in taxes charged by various States.
6. Lack of aggressive and effective marketing and promotional
strategies.
7. Land availability is a major hurdle for any hotel project. Release
of land at prime locations is difficult because large tracts of land
in such locations come under the Government’s control.
8. The prohibitive cost of power in India.
9. High government duty on power tariffs.
-52-

OPPORTUNITIES:
1. Influx of MNCs in the country after liberalization. This has led

to a flurry of industrial activity in the country and thus an
increased demand for the hotel.
2. Declaration of the Hotel Industry as a “High Priority Industry”.
3. Government policy of positioning hotel and other tourism
related activities in the private sector.
4. Various incentives/concessions extended by the Government.
5. Approval of the hotel by the Department of Tourism. This
approval constitutes a certificate of suitability of the hotel for
occupancy by tourists, both foreign and domestic.
6. Higher interest subsidy for hotel projects that are set up in
special areas and specified destinations as per the Government.
7. Introduction of the Capital Subsidy scheme for the Heritage
class of hotels.
8. Declaration of the hotel and tourism industry as a high priority
industry for foreign investment.
9. Liberalization of imports and concessional customs duty.
THREATS:
1. Significant over capacity in places like Madras and Goa.

2. Dual pricing is a major deterrent (Indian and Foreign tourists).
3. The continuous change of Governments over the past years has
led to a slowdown in both foreign investment and business
travel.
4. High capital costs combined with long gestation periods.
5. Inadequate infrastructure development in terms of international
airports, roads, communication facilities, cost of communication
etc.
-53-

6. Competition from international hotel chains like Le Meridien,

Marriott International, Radisson (Carlson) and Regent who have
evinced interest in setting up hotels by taking up equity stakes in
hotel projects.
7. Marginal decline in tourist arrivals due to devaluation of the
Asian currencies, which have made these countries cheaper than
India.
-54-

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Study of Hotel Industry

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Comprehensive Study of Hotel Industry

N L Dalmia Institute of Management Studies & Research

3. Objective of the study

4. Evolution of the Hotel Industry

7. SWOT analysis of hotel Industry in India

N L Dalmia Institute of Management Studies & Research

Land comprises 45-50% of the total project cost and is therefore

N L Dalmia Institute of Management Studies & Research

N L Dalmia Institute of Management Studies & Research

Objective of the Study

1. To understand the Govt. policy regarding the Hotel Industry in

2. To understand demand & supply and competitive trends in

3. To know the impact of IT on Hotel Industry in India

N L Dalmia Institute of Management Studies & Research

Chapter:1 HOTEL INDUSTRY

(a)Hotel customers are referred to as ‘Guests’ as they receive

(b) A hotel is “immovable”, in contradistinction to a

(c)The capital investment in a hotel industry is generally high and

(e)Some hotel facilities like rooms, and ‘covers’ in restaurants are

N L Dalmia Institute of Management Studies & Research

These assumptions postulates that the economic viability of a

-) The speed with which demand for hotel facilities can be

-) The capacity to ensure and retain customer satisfaction which

-) The package ,tenor of atmosphere, service and quality, which

Hotel industry market segmentation

N L Dalmia Institute of Management Studies & Research

at a luxury hotel may be on business on his company’s expense

THE HOTEL PRODUCT

The hotel product has a number of components like

N L Dalmia Institute of Management Studies & Research

The hotel does not journey to its customers to consummate a sale

Perhaps the most important elements of the hotel marketing is

N L Dalmia Institute of Management Studies & Research

The major elements of the hotel communication mix are , mass

Advertisable Hotel products and services :-

*Conventions, conference & meetings

Objectives for Hotel advertising:-

N L Dalmia Institute of Management Studies & Research

• To increase awareness or interest in: Versatile advantages of

Sales promotion is aimed at generating immediate response in

Forms of Travel & tourism Consumer and trade promotion schemes:

1.Price-off Promotion special discounts etc

N L Dalmia Institute of Management Studies & Research

5.Guarantees Money back guarantees in case

Specific ongoing sales promotion activities in Hotel Industry:

Trade & Consumer Fairs Exhibitions: The main purpose of these

The apparent strong point of direct mailing is that it can be pin-

N L Dalmia Institute of Management Studies & Research

It is a very important communication function for Hotel Industry.

Another most important aspect for Hotel industry is Publicity not

N L Dalmia Institute of Management Studies & Research

Indian cooking has more combinations of flavors and seasonings-

In ancient times travelers were a rarity ,but could always rely on a

N L Dalmia Institute of Management Studies & Research

Prior to the formation of hotels and hotel companies, the ‘club’

The princely palaces of the many Royal Indian maharajahs and

India & Indians have a long cultured heritage of catering and

Railway catering:- In the mid 19th century Railway network

N L Dalmia Institute of Management Studies & Research

could spend the night before or after in relative comfort. The

Airline catering:-Unlike any other transport system –rail or ocean

N L Dalmia Institute of Management Studies & Research

Chapter:3 GOVERNMENT POLICY